Friday, February 15, 2013

Growth Outlook for Indian Pharma Companies - Getting back into an Investment Phase

Over the last few years Indian pharma companies have reaped a bonanza driven by patent expires and first to file opportunities in the US and penetration driven growth in domestic Pharma space. But it seems the growth avenues are now getting constrained as companies face dual pressure of growing competition and declining market driven growth opportunities.

An ever increasing number of companies continue to target the US market, while the opportunity size is getting smaller (Chart 1). In the next five years, we would see a decline in the number of patent expiries, which would limit the upside. Most of the larger patent expiries scheduled over the next five years are likely to have mutliple first to filers and also there is growing uncertainty around the potential of the sales of these compound, as these drugs are more or less likely to be replaced by a new gold standard, reducing the potential opportunity for generic players.

The Indian pharma companies, which so far also have taken advantage from the growth opportunity presented by Indian pharma market, are now struggling as the pace of growth is also slowing.  The Indian pharma market is now growing at 10 percent  (June- Sep 2012) as compared to 15 percent in the previous year. There are also no policy initiatives that can usher in fresh growth in to the sector.

To add to the woes of declining growth, competition as well is acting against these companies. The Pharma product basket in India is limited to molecules approved prior to 2005 and we are seeing increased competition chasing the same product basket.  Even Multinational pharma innovator companies have also set up their generic divisions and are launching branded generic version, adding to the competition.

Indian Pharma will have to make fresh investments to prepare itself for the next growth wave

The growth avenues clearly are
1)  Complex generics in the US- Respiratory Generics, Topical generics requiring clinical trial,
2) Develop Novel Formulations of existing Drugs that enhance compliance, Convenience, safety or efficacy -
2) Biosmilar - Biologics continue to gain prominence in the overall pharma market. They now comprise 15% of the global pharma sales and their share is expected to grow to 20 percent in the next five years.

Drug Sales Exposed to Generic Competition Declining

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